I move amendment No. 145:
In page 94, to delete lines 28 and 29 and substitute the following:
"(a) without prejudice to the powers of the court under section 256, the directors' declaration under that section had not been made; and".
SECTION 109
Amendment put and agreed to.
I move amendment No. 146:
In page 95, line 5, to delete "not exceeding £1,000".
This is a straightforward amendment and has the simple aim of increasing the maximum fine for contravention by a liquidator of subsection (1) of this section — in other words, where there is a failure by a liquidator to call a creditors' meeting, if the company are found to be insolvent — to the general level set out in section 202 (2) of the Bill. It would, of course, also have the effect of making the offence an indictable one.
Is the Minister proposing any amendment to the 1963 Act to specify the minimum qualifications required by persons seeking nomination as a liquidator or, indeed, as a receiver and examiner in view of the impositions he is imposing here?
Not necessarily minimum qualifications. We are going to disqualify people, as under section 124 of the actual Bill, which if the Deputy wishes I will detail again but that is a matter for the committee.
Has the Minister considered whether any minimum qualification or requirement should be set out in the legislation in view of the obligations now being imposed on liquidators, receivers and, I notice also, examiners? Surely it might be time to consider that point.
I have not considered it. It is a very difficult matter to tackle. We do not propose to deal with it in this Bill. It is a complex area but under section 124 disqualificaton for appointment as liquidators certainly would satisfy me and it would satisfy the general public as far as the qualifications of a liquidator are concerned. I do not propose to deal with that in this Bill.
Is there any provision in any of the upcoming EC Directives on company law in regard to the minimum qualifications for liquidators?
Chairman, if I may I would be prepared to say at this stage we are not aware of such but if we can have this matter examined it is certainly not at the moment before the EC or being considered at EC level. As you know there are other areas of qualification which have been examined and have led to discussions in relation to one field alone, architecture, which I am aware of. This has actually led to protracted discussions with the EC and the Department and agreement has been reached as far as I am aware but as far as this area is concerned not to my knowledge is there such requirements or discussions going on.
I think it is going to be quite important that there be mutual recognition of the results of the company law process as between different member states and so perhaps it is something that needs to be looked at at that level.
Chairman, on that point that would be a matter that would have to be examined in relation to mutual recognition and that is something we would be going through in the company law programme at the EC which we are presiding at at the moment.
Would the Minister not agree that there are some inconsistencies here. If you go back to section 107 which deals with the voluntary winding up of a company, an independent report is sought and it is quite specific that the independent report must be made by the auditor of the company, which would imply that an independent report should be made by a qualified person, but in relation to creditors' winding up a liquidator can be appointed who may not be a qualified person at all. That would justify the point being made by Deputy Bruton that the same condition should be imposed in relation to a creditors' winding up as a voluntary winding up.
Actually the liquidator in a members' voluntary winding up does not need to be a qualified person or specified.
The position here is that if a members' voluntary winding up is to take place and to be allowed to continue, that is dependent on a statutory declaration being made by the directors together supported by the independent reporter. If that is challenged and it is proved not to be correct and not in accordance with the facts, then a members' voluntary winding up turns into a creditors' voluntary winding up. It would seem to me that in the case of a creditors' voluntary winding up as such, there are sufficient safeguards to ensure that people who act irresponsibly are dealt with in the appropriate manner.
On the general question Deputy Bruton raised about whether there are any proposals at EC level for qualifications of liquidators, the answer is no, there is no proposal as yet, but I do take your point that perhaps we could initiate something at EC level, that a liquidator should have certain minimum qualifications.
Did I understand the Minister to say that his Department have not received any complaints about the minimum qualification required for liquidators?
I certainly did not say that; I said we have received quite an amount of representations from different bodies — professional organisations — and the point made by Deputy Barrett again seems reasonable, but he is also aware of the difficulties in bringing about such a situation which would actually recognise minimum qualifications for such a position and we are not dealing with this in this Bill. It is one that will have to be considered in due course but not at this stage.
May I suggest that in considering the matter the Minister should seek to arrive at a situation in which a range of possible qualifications might be acceptable rather than that a monopoly of liquidations be granted to one profession? I think it would be undesirable to create any more statutory monopolies in this country — we have enough of them already. We can see it in the drinks trade for example. I think we should avoid creating new ones. A range of qualifications that might be accepted would possibly be the best way. I think Deputy Barrett is absolutely right that the integrity of liquidations is going to hinge to a great extent on the standing of the people conducting them but that can be achieved without giving anybody a monopoly.
I agree totally with the sentiments of Deputy Bruton in relation to this matter; there would have to a wide range of qualified persons who would be suitable for undertaking liquidations. Again, with the length and complexities of this Bill we are going into another area when it comes to the question of minimum qualifications. We have considered this but there are so many complications in this area and having discussed this the EC, at this stage it will not be included in the Bill. However, the points made are very relevant and I fully agree with Deputy Bruton's point in relation to giving a monopoly to any area. That is where the difficulties arise in trying to get general agreement in relation to minimum qualifications for a liquidator. To date, liquidators have been relatively satisfactory as far as I am aware and there is enough protection in this Bill to ensure that a suitable liquidator would be appointed to a particular company.
I would refer Deputies to section 109 (2) which obliges the liquidator to make out a statement in the prescribed form as to the affairs of the company, including a statement of the company's assets and liabilities, a list of the outstanding creditors and the estimated amount of their claims and their other duties. Would the Minister not agree that it would be necessary to have somebody with minimum qualifications or experience to be able to do that properly? As the legislation stands at the moment, as I understand it, there are no minimum requirements in terms of qualifications for a liquidator, and if we are dealing here with a new Companies Bill which would probably remain on the Statute Book for many years to come, surely now is the time to put in a broad statement that a liquidator must be a person who is qualified to carry out the normal duties of a liquidator and imply that that person must have some broad qualifications. If you are asking somebody to do these things, the minimum we can expect is that they have the qualifications to do so.
I take Deputy Barrett's point and it is a very valid one, but I would point out that to date, as Irish company law stands at the moment, liquidators have certain powers, duties and responsibilities and that has worked very well in practice despite the fact that we do not have the minimum qualifications requirement. I would also refer Deputy Barrett to section 204 of this Bill which provides that anybody who makes a report, etc, lodges or delivers any report or any other document that is false and misleading in a material particular will attract certain consequences. From that point of view when liquidators are making out that report they will have to be very careful because they could find themselves behind bars.
It might be desirable to have minimum qualifications for liquidators, but even then there would be no guarantee that they would carry out their functions the way a committee like this would wish. I would prefer to approach it from the other end by disqualifying certain types from acting as liquidators, whether we want to cross-connect that with, for example, a liquidator who, in handling a previous liquidation showed that he or she was less competent than they might otherwise have been, or that the courts might have determined. That might be a better way of meeting the standards we would like to set down for liquidators.
It is going to be difficult to ensure minimum qualification or a minimum degree of competency. We can only hope that will be the case, but if we approach it from the other angle, that is to disqualify certain types of people from acting as liquidators, it might perhaps work more advantageously.
Just to make one point here, the final point which is relevant——
There is a big splurge annually in the papers about what liquidators spend of creditors' funds — one thousand pounds a week.
That is the very point I am going to make. If you have somebody who is not qualified in the true sense of the word, surely it is reasonable to expect that that person may take much longer to wind-up a company than somebody who is better qualified! The net result to the creditors is that there is a chance more money will be spent paying liquidator's fees than would be available to small creditors. That is why having minimum standards or qualifications set out for a liquidator are very relevant in terms of dealing with this sort of legislation. At the end of the day, we are concerned about the fact that, if a company has to be wound up, as many creditors as possible would be paid.
It is quite disturbing at times to see large sums of money being paid out to a liquidator and small creditors being left without. I am not casting any aspersions on individuals who have carried out liquidations in the past but, by virtue of the fact that somebody is given these broad responsibilities by this Bill, he can take a much longer time settling affairs than a better qualified person. I am approaching this from the point of view of defending the rights of the small creditors as distinct from protecting any form of vested interest. Therefore, there is a duty on the Committee, whether the Minister would agree or not, to consider this very point about minimum qualifications for liquidators. If you are going to impose various obligations on people, then you have to be satisfied that they are suitably qualified to perform those duties. It is not much use, with respect to Deputy O'Dea, saying that in section 204 of this Bill there are broad penalties that can be imposed, if it is found that he has made a mess of the thing.
If I might intervene here, I have allowed a fair bit if latitude. This amendment simply changes the present legislation where the liquidator fails to comply with subsection (1). Subsection (1) is a procedural section as to what he has to do in relation to the obligations put on him. This amendment simply decides that if he does not comply with those procedural moves, rather than as at present stated, he should be liable to a fine not exceeding £1,000; the amendment under discussion says that he should not be liable to a fine. That is what this amendment is about, and we are into a whole different area at the moment. I have allowed latitude on it and we have a fair bit of work to do on it. Let us try to stick to this specific amendment and when the other points come up on minimum qualifications let us deal with them then. We are really duplicating.
What safeguard is there for creditors where a company is being wound up by tender, that the liquidator accepts the highest tender made to him?
The Minister may reply to that if he wishes; it is not directly relevant to the amendment.
It is relevant to ensuring that the creditors——
That is not under discussion.
It is to do with the liquidator and his competency.
I am trying to help the Committee make progress.
Can the Minister give me any indication that there is a safeguard there for creditors that the highest tender is accepted? It is a secret tender and it is happening at present. Is there no safeguard then for small creditors?
As chairman of the Committee I do not wish to cut across this, you are making a point and you are entitled to make a point. I have power under Standing Orders to stop debate where it is not relevant and, really, in relation to this amendment under discussion, what we are talking about is not relevant. The Deputies here are looking at the amendment under discussion and I accept that. At no stage do I wish to stop discussion but I hope it is relevant to the amendment. If another point comes up on minimum qualifications on a later amendment, let us deal with it. I am going to put the question.
May I make a suggestion that might be constructive? Part XI of the Bill is general and perhaps the Minister might be prepared to consider the introduction of amendments giving himself power to prescribe qualifications for liquidators and to deal with the issue of tenders, mentioned by Deputy Boylan, as a new section in Part XI of the Bill. That is not binding him to do it, but he might at least consider that possibility. That would mean the issue could be discussed in Part XI.
I must be quite clear about this. I cannot give any such commitment.
Amendment agreed to.
Question proposed: "That section 109, as amended, stand part of the Bill."
Subsection (2) of section 109 sets out requirements for a liquidator in regard to his various duties. Is the Minister satisfied that the requirements being imposed upon a liquidator are reasonable given that there is no minimum qualification required of a person nominated as a liquidator? In view of the requirements of section 109 and, indeed, other sections in the Bill, this Committee should ask the Minister to consider favourably the points I have made in relation to minimum qualifications. Would the Minister indicate whether, in relation to Part XI of the Bill, as mentioned by Deputy Bruton, he would consider giving himself powers, by way of order, to impose minimum qualifications for persons seeking nomination as a liquidator, a receiver or, indeed, an examiner if we eventually agreed to that Part of the Bill? If he is prepared to consider that point, just to give himself power by way of order, then we will not, 20 years from now, have to have some sort of standards imposed upon individuals who are going to take up these positions.
I appreciate that Deputy Barrett has put forward very reasonable arguments and, indeed, has opened up a discussion which can be continued, perhaps, in a different forum at a different time. Certainly I cannot give any encouragement to the view that this will be considered by either order or otherwise under this Bill. In practice, in court winding-up in particular, invariably the liquidator is a practising accountant and is also usually a member of one of the recognised accountancy bodies. That has been the norm and general practice, but in this Bill we are not laying down minimum qualifications.
The point made by Deputy Carey in relation to the remuneration of liquidators is covered. Where the creditor appoints a liquidator at a meeting called under this section and there is a dispute as to any or all of the costs, charges or expenses incurred, including the remuneration of the liquidator appointed by the members of the company, the liquidator appointed by the creditors, or any creditor, may apply to the courts to determine a dispute and the court may, on such application, make such order as it deems fit. That is under section 109 (5), so that covers the question of alleged excessive charges by liquidators which has created certain debate at times in relation to the charges they apply.
This situation was considered but it was not possible to include it in this Bill. However, it is something that will be considered another day in relation to EC law and to all situations. At this stage I do not want to raise any expectations that I will consider including this in the Bill.
Is it not a fact that most of the company liquidations that have taken place to date, as the Minister said, have usually been handled by the type of people you would expect, because of their qualifications, to carry out the liquidation effectively and correctly? That does not really tie in with what appears to be a perception that the major costs involved in liquidations would militate against appointing people with those qualifications. Far from narrowing the base of who can act as liquidators, I would rather see it widened, and in the case of certain categories of candidates acting as liquidators, we would approach it from a point of disqualification rather than the other way around, taking account of previous performance. The major liquidations that have taken place have been highlighted — Deputy Carey made some remarks about this area and I go along with him — but they have been handled by well known personalities dealing in this area. Who are we to say that those liquidations and the charges involved were not handled properly and professionally? The point made by Deputy Barrett is worthy of consideration and perhaps we could return to it at some other stage. The point I want to make is that we must broaden rather than narrow the base. How are we going to produce the qualification? Is it going to be drawn from the legal profession specifically? Is it going to be drawn from the accountancy profession or from different branches of accountancy, or are we going to go to the universities or the accountancy firms, creating a new professional qualification to enable people to act within what is suggested here? It is quite complicated and frankly I do not think that we can deal with it on the lines suggested by Deputy Barrett.
The question of the professional qualification has been aired and replied to. Deputy Bruton has another point on this section, I hope.
The section replaces section 261 of the Principal Act. Section 261 of the Principal Act is a masterly piece of economy of diction. It only runs to about ten lines whereas this section is in the region of 100 lines. This needs to be explained. Why do we need to have this much more complicated provision in regard to the duties of the liquidator? In particular, there is one aspect of this new section replacing section 261 which I query, if I may. The provision states that if a liquidator fails to comply with subsection (1) he should be liable to a fine not exceeding £1,000 but one of the things in subsection (1) is that he must summon a meeting of creditors not later than 14 days after he formed an opinion that the company was unable to pay its debts. Saying that a person forms an opinion at a precise moment, i.e. 12 o'clock on a Monday, seems to be to be rather unrealistic. I imagine a liquidator might form such an opinion over a period and that it would be rather difficult to prove he had formed the opinion at one time rather than another. Yet it could be attempted. It is an offence technically if he calls the meeting 15 days rather than 14 days after he had formed an opinion that the company was not able to pay its debts. Is this practical legislation or is it just the Department of Industry and Commerce putting stuff in there to cover itself without an real anticipation that it will ever have any practical effect?
This Bill has the wisdom of six Ministers at least so it is a very considered legislation. This is the sixth Minister to take this Bill which makes it all the more interesting from the point of view of all the detailed complex legislation we have before us. Deputy Bruton has put forward an interesting point on forming an opinion because you have to state the date, but under the new provision the liquidator would be required to summon a meeting of the creditors within 14 days of having formed the opinion that the company will not, contrary to the directors' declaration of solvency, be able to pay its debts. He must give at least seven days notice of the meeting to creditors and he must advertise notice of the meeting both in Iris Oifigiúil and in the national press, the advertisement to be at least ten days before the meeting, under Government amendments made in the Seanad. Finally, the liquidator would be required to furnish creditors’ advances and so on. Forming an opinion would be the conclusion of serious consideration of the facts before him.
How would you know? Suppose I was a liquidator and you were trying to prove I had formed an opinion on a particular day and you were trying to convict me for having called the meeting late. Will it be easy to determine when somebody formed an opinion? It seems to be very subjective, to use the word that Deputy O'Dea was using in another context.
On a point of clarification. Under section 256 of the Principal Act if he forms the opinion he forthwith calls the meeting and simply lays before the meeting the assets and liabilities of the company. Subsection (7), in relation to him being fined, would not relate specifically to when he formed the opinion. The new section 109 states that when he forms the opinion he shall do x, y, z, a, b, c, d, the whole way along the line, and if he did not do that he would then be liable under subsection (7). That is presumably the idea behind subsection (7). It does not relate to the formation of the opinion. If he forms the opinion under the old section he forthwith calls a meeting without half of the necessary information being available to the creditors. It would only become available to them at the meeting. The idea of the new section, as I see it, is to impose an obligation on the liquidator to do certain things which would be to the benefit of the creditors before the meeting. Therefore, the formation of the opinion is not the relevant point in this section. If he did not, for example under subsection (1)(d), furnish creditors free of charge such information concerning the affairs of the company as they may reasonably require then subsection (7) would come into play. That is what they are getting at; it is not in relation to the formation of the opinion.
I would suggest that what is being put into the new section 109 as distinct from section 261 is more protection for the creditors in the event of the liquidator deciding that there were not sufficient assets. On that section, formation of the opinion aspect is the very same. In fact the wording is the same as the Principal Act because it says if he is at any time of the opinion; it is the very same wording here. "if the liquidator is at any time of the opinion".
The difference is that rather than forthwith calling the meeting at which you would only then get the information, you shall call a meeting subject to certain conditions which will involve giving necessary information to creditors. That is an improvement on the Principal Act. Let us accept that and move on.
I can understand the Chairman's impatience, but I am only concerned with one very tiny aspect of the section, which is whether it is realistic to be saying that a penalty should apply to somebody if they do not do something within 14 days of when they formed an opinion.
In the same way as you would not get him under 261, when he would decide that he would forthwith call the meeting. If he was of the opinion ten days before and only called a meeting ten days after, he could say "I got that opinion on the tenth day"; so you cannot legislate for that case.
I think, I may be wrong, it might be better to use "forthwith" rather than "14 days".
We are satisfied that the liquidator would be conscious of his obligations under the Act in having, within a set number of days, to make the decision. He would be conscious that he would be open to prosecution if he did not so proceed after making that decision. As regards records and the examination and studies of any particular file I would have to bear in mind that he would be conscious of his obligations and after due consideration when he had come to a decision and neglected to carry out his duties within 14 days, then he would be liable to prosecution. I think it gives him a clear mandate, to act in a certain way after a certain length of time after making the decision.
I agree with the Chairman. I think the point he has made is extremely valid. In response to Deputy Bruton's last point, my reading of subsection (a) is that he is still under the obligation to call the meeting immediately he forms the opinion. The only difference from the old section to which he referred is that he now has 14 days, that the meeting must be held no later than 14 days after the day on which he formed the opinion. The minute he forms the opinion he is under an obligation to call a meeting, but this new section simply gives him 14 days to get the creditors together.
I think it strengthens the position for the creditors; it makes the position clear. I imagine that a creditor, or group of creditors, would themselves have some reasonable information about most company operations that are in liquidation or going into liquidation. They might, through their own access, be able to express their point of view about, for example, calling a meeting of the creditors. The other point is that it spells out clearly that he must act within a certain time. That does strengthen the position of the creditors and after all, they will have a major role in starting the whole process as well.
Question put and agreed to.
Section 110 agreed to.
NEW SECTIONS.
I move amendment No. 147:
In page 95, before section 111, to insert the following new section:
"111.—(1) This section applies where, in the case of a creditors' voluntary winding up, a liquidator has been nominated by the company.
(2) The powers conferred on the liquidator by section 276 of the Principal Act shall not be exercised, except with sanction of the court, during the period before the holding of the creditors' meeting under section 266 of that Act.
(3) Subsection (2) does not apply in relation to the power of the liquidator——
(a) to take into his custody or under his control all the property to which the company is or appears to be entitled;
(b) to dispose of perishable goods and other goods the value of which is likely to diminish if they are not immediately disposed of;
(c) to do all such other things as may be necessary for the protection of the company's assets.
(4) The liquidator shall attend the creditors' meeting held under section 266 of the Principal Act and shall report to the meeting on any exercise by him of his powers (whether or not under this section or under section 276 or 280 of that Act).
(5) If default is made——
(a) by the company in complying with subsection (1) or (2) of section 266 of the Principal Act, or
(b) by the directors in complying with subsection (3) of the said section,
the liquidator shall, within 7 days of the relevant day, apply to the court for directions as to the manner in which that default is to be remedied.
(6) ‘The relevant day' means the day on which the liquidator was nominated by the company or the day on which he first became aware of the default, whichever is the later.
(7) If a liquidator without reasonable excuse fails to comply with this section, he shall be guilty of an offence.".
Question —"That the new section be there inserted"— put, and agreed to.
I move amendment No. 147a:
In page 95, before section 111, to insert the following new section:
"111.—The Principal Act is hereby amended by the substitution for section 275 of the following section——
‘275.—(1) Subject to the provisions of this Act as to preferential payments, the property of a company on its winding up——
(a) shall, subject to subsection (2), be applied in satisfaction of its liabilities pari passu, and
(b) shall, subject to such application, and unless the articles otherwise provide, be distributed among the members according to their rights and interests in the company.
(2) Nothing in paragraph (a) of subsection (1) shall in any way affect any rights or obligations of the company or any other person arising as a result of any agreement entered into (whether before or after the commencement of section 111 of the Companies Act, 1990) by any person under which any particular liability of the company to any general creditor is postponed in favour of or subordinated to the rights or claims of any other person to whom the company may be in any way liable.
(3) In subsection (2)—
"liability" includes a contingent liability; and
"person" includes a class of persons.'.".
Section 275 of the 1963 Act provides that the property of a company on its winding-up should be applied in satisfaction of its liabilities pari passu. This rule is stated to be subject to the rights of preferential creditors. Irish banks and other financial institutions regularly issue Eurobonds usually in the form of unsecured floating rate notes. The conditions in the agreement deed governing such note issues normally provide that the repayment of principle and interest on notes will, on the winding-up of an issuer, be subordinated in point of payment to the claims of the unsecured creditors. The effect of this subordination would, of course, be to strengthen the position of the ordinary as well as the secured and preferential creditors, because of the lower ranking given to Eurobonds. There is also an increasing tendency, outside the banking area, to raise capital by means of subordinated debt.
In view of section 275, questions have been raised as to whether it is permissable to subordinate the claim of one class of unsecured creditors to other unsecured creditors, even with their consent or agreement. We are now satisfied that such subordination is, in fact, in conflict with section 275 as it stands and would not be recognised by the court in a winding-up. An EC Directive in the banking area, to be implemented by 1 January 1993, will require member states to adopt a common definition of "own funds". In defining matters that can be taken into account in calculating the reserves of a financial institution, loan stock which fulfils certain conditions is acceptable. One of these is where the holder's claim ranks after all claims from unsecured creditors, and thus the concept of subordination is accepted at Community level. Amendment No. 147a is designed to introduce a certainty into this area, in other words, to remove the conflict which currently exists between section 275 of the 1963 Act, on the one hand, and existing and ever increasing commercial practice on the other, thereby making it legally safe to subordinate with agreement the claims of any class of creditors.
Has this any relevance to the collapse of ICI?
No, it has nothing to do with that.
If I may, I will explain why I asked the question. As the Committee will be aware, I was very much involved at the time in the necessary rescue of ICI, at considerable difficulty. One of the reasons it was suggested it was necessary to involve the State was obviously the shareholding, the fact that ICI was owned by the largest bank. One of the arguments that was put forward to Ministers by the Central Bank and others at the time as to why it was urgent and that decisions had to be taken in great secrecy and at great speed, was that Allied Irish Banks had issued a large number of floating rate notes and these floating rate notes, it was represented, could be called in just overnight. I do not pretend to be able to explain the whole procedure. In fact, there was not even time to have it explained to me at the time because of the way in which this thing suddenly blew up in our faces.
It seems to me that the issuance of these floating rate notes by the banks has a very direct relevance to the taxpayer in so far as at the end of the line, given that our two large banks are so dominant, the State is liable to be drawn in to preserve the banking system in view of the fact that we are such a huge borrower as a nation and that any banking practice that makes it more difficult to do this in a way that is deliberate and does not involve the necessity to make very quick decisions under pressure is undesirable. I realise that the Minister may not have had an opportunity to be briefed on this question because I did not think of raising it until I heard the Minister describing this amendment. Perhaps the Minister will comment on this and indicate whether, in the view of the Department of Industry and Commerce, any restraint should be introduced in regard to floating rate notes to prevent that kind of situation developing again.
I am interested by Deputy Bruton's explanation of the situation that occurred at the time, but certainly it did not give rise to this matter being considered in relation to this Bill or the difficulties and the threats to the banking system which arose at that time were not a consideration in relation to the Bill. There is also an increasing tendency outside the banking area to raise capital by means of subordinated debt. It does not have a bearing on the situation. As I said I am very interested in the comments made by Deputy Bruton and my officials have taken note of what he said.
Could I ask the Minister to come back on it in due course?
The notes that are taken here today naturally will be considered. I cannot assure the Deputy at this stage but the points he has made will be considered by my Department in the light of what he has stated here today.
Amendment agreed to.
Section 111 agreed to.
NEW SECTION.
I move amendment No. 147b.
In page 95, before section 112, to insert the following new section:
"112.—Section 285 of the Principal Act is hereby amended by the deletion of subsections (2) (a) (i) and (2) (a) (ii), by the insertion in the second line of subsection (2) (a) (iii) of the words "Value-Added Tax or" after "in respect of" and by the substitution of "4" for "12" in the sixth line of the said subsection (2) (a) (iii).".
This amendment implements the recommendations of the Commission on Taxation which suggested that the preferential status of the Revenue Commissioners in the winding up of companies enabling them to get their money in advance of others should be removed in respect of corporation profits tax and income tax but not in respect of PRSI, PAYE and value-added tax. The wording of our amendment No. 147b is designed to the best of our ability to achieve that. It is also designed in respect of the provisions in section 285 to reduce the time limits within which the Revenue Commissioners must act in order to protect their preferences from 12 months to four in respect of PRSI. This is an amendment to section 285 (2) (a) (iii). It is fair to say that the Revenue Commissioners have got tremendously increased powers to collect taxes over the last number of years. They have had very much improved provisions in regard to penalties for non-compliance, much improved powers in regard to the appointment of sheriffs to collect taxes. They benefit greatly from the other provisions in this Bill which, generally speaking, make it much more hazardous for people to continue to trade while insolvent and thereby requiring people to take timely action, if they are in charge of a company, to regularise the affairs of the company and, if necessary, wind it up while it is still solvent, or near solvent, to avoid penalties for themselves so that the Revenue Commissioners will thus benefit from the general tightening up of company law contained in this legislation. In addition to benefiting from the very much enhanced powers they have been given under successive Finance Bills, I do not think I need to spend a long time elucidating for the committee the enhanced powers the Revenue Commissioners have, but I could produce the relevant evidence which will convince the committee the Revenue Commissioners enjoy tremendous advantages here.
The Revenue Commissioners, by virtue of the fact that they are the only body who have criminal sanctions enabling them to ensure that people make bimonthly VAT payments on time and monthly PRSI payments on time, have access to information about the financial status of the company that is second to none. They know better than any other creditor how the company is going and they are, therefore, in a better position than any other creditor to take pre-emptive action to prevent their money being lost. It appears, therefore, to be anomalous to say the least that the body that has the greatest statutory protection — and it is something they should have in terms of information about how things are going—should also have preference over everybody else in terms of getting the residual losses to the company in the event that it does fold up. It is essentially a case of giving the Revenue Commissioners heads you win, tails you win because they have better information plus, at the moment, tremendous statutory powers plus Revenue preference.
It is worth recalling that in 1963 when the existing preferences were granted to the Revenue Commissioners that was not the case. The system of PAYE did not exist so there was not a monthly collection system. Value added tax did not exist. There was a system known as turnover tax but it applied to a much narrower base. There probably was the need for Revenue preference to be granted at that time because the Revenue Commissioners did need to have this residual protection which, in my opinion, they do not need any more. I accept the general distinction that might be made between money owed to the Revenue Commissioners in respect of the company's own tax liabilities, i.e. its own corporation tax essentially, and money owing by the company to the Revenue Commissioners in respect of money collected by the company on behalf of the Department of Social Welfare or collected from customers in the form of VAT.
In a sense, not to give a preference in respect of the money that has been collected simply on an agency basis, which never really belonged to the company, would be unfair. That is why in the amendment we are retaining the preference for subsection (2) (a) (iii) which refers to deductions from income by an employer from an employee and we are adding value-added tax into that section. We are saying that the Revenue must act within four months. I feel that that is reasonable.
The removal of blanket Revenue preference in respect of all taxes has been recommended by the Corke Committee which reported on company law in Britain. It has also been recommended strongly by the Commission on Taxation. It is fair to say that the Commission on Taxation was no friend of people who were bad taxpayers. That body that recommended a considerable widening of the tax base, a widening which in some respects has not taken place, and in other respects has. After reviewing the case for and against, they came to the conclusion that is reflected in amendment No. 147b, which is slightly different from amendment No. 148, which goes much further. As both of them are in the names of Deputy Barrett and myself, I have to choose between them, and if I were to choose between them I would choose 147b. But I wish to leave amendment No. 148 on the table, at least until such time as the Minister has replied in case something has been left out of amendment No. 147b that should have been included.
I am sorry the Minister is not here, but in addition to the Commission on Taxation, the Corke Committee in Britain and numerous other reputable bodies — the Irish Institute for Credit Management, for example, the Institute of Taxation and so forth — have all recommended amendments along the lines I am suggesting. In addition to this, the Progressive Democrats in their five-year programme of tax reform to get Ireland working, published in November 1988, stated on page 43 that they wished to see——
(Interruptions.)
I am sorry the Minister is not here because he would be the best person — this is no disrespect to the Minister of State — to deal with this really, because his own party called, and, I quote, "for an ending of the preferred status of the Revenue on insolvencies"— I presume they meant "in insolvencies". I feel that is a very reasonable proposal. I could elaborate and quote from the Corke Committee. For instance, the Corke Committee note said:
Many suppliers of goods and services are constrained to extend credit facilities in accordance with the custom of trade. In a practical sense they have no real choice in the matter and are sometimes unable to exercise credit control. Many other categories of involuntary creditors may readily be called to mind. Litigants who obtain judgments for costs, for example, and the victims of breach of contract or tort do not normally extend credit voluntarily to their debtors. It is no fault of theirs that they find themselves owed money by an insolvent. In many cases such creditors are deserving of much sympathy, yet their debts are subordinated to those due to the Revenue Commissioners under the present law.
I would certainly think that the Revenue should not have any preference over involuntary creditors such as those I have mentioned. I could go on, but the arguments I have made are more than sufficient to enable the Minister to accept amendment No. 147b.
I would ask the Minister to reply and it would then be for consideration by the Committee, when we meet again, to go through this a bit more.
The original section 111 in the Bill — consent to appointment as liquidator and notification of appointment — did we deal with that section? We dealt with two amendments which were inserted, new sections prior to that section.
We dealt with section 111. There was a new section inserted under amendment No. 147 and a new section amended——
But that is before section 147.
There was an amendment No. 147a which is on your green list of amendments, which was also inserted. It stated "to insert the following new section before section 111. Instead of section 111——"
No, before section 111.
I subsequently called section 111.
There was no explanation from the Minister.
(Interruptions.)
I can assure you there was no collusion between the Chairman and the Minister.
(Interruptions.)
Oh, no. I am not saying that.
I am just saying that to Deputy Carey, in case he thought there was. I would ask the Minister to reply and then you will have an idea of the situation when we return.
I feel that Deputy Bruton will forgive me if I do not respond to his last point in relation to political documents that may be produced at different points in time, particularly when he is also well aware of many documents produced by many parties at particular times about which, naturally when on further consideration and the support and wisdom of a major Department of State behind you, you may have different views. Neither is it in the Programme for Government and that is also very relevant to Deputy Bruton. I know he is not being in any way mischievous in bringing this matter up at this point. It is a reasonable point. I know my colleague, Minister O'Malley, would regret very much his inability to be here today because I am sure he would more eloquently reply to the points made by Deputy Bruton, but I certainly have no responsibility for that document, which has no bearing on this Bill.
Would the Minister agree to bring it to the Minister's attention?
This Minister would not agree to that because I am sure——
Is it necessary then, for me to write to the Minister?
I understand from your radio interview that you have already made clear your position in this regard.
So the Minister listens to radio interviews, does he?
I certainly do. Chairman, I refer to the main substantive part of Deputy Bruton's and Deputy Barrett's amendments put forward here. I would like to thank the Deputy for outlining the reasons for the proposed amendments to section 285 of the Principal Act which relates to preferential payments in liquidations and receiverships. I am fully aware of the depth of feeling regarding the provision of this section. One of the fundamental objectives of insolvency law is to achieve an equal distribution of the uncharged assets of the insolvent among the unsecured creditors. However, over the years there have been a number of exceptions to this rule and with very good reason.
Section 285 of the Companies Act, 1963 provides that certain debts shall rank in priority to all other debts in a winding up. Section 98 of the 1963 Act applies the provisions of section 285 to receiverships. These preferential debts are, therefore, paid after the holders of fixed charges and before the holders of floating charges and unsecured creditors. The debts which are afforded preferential status under the 1963 Act and under a number of subsequent enactments are briefly all assessed taxes, PAYE, PRSI, local rates and wages etc., due to employees. All preferential debts rank equally and likewise abate in equal proportions if the assets of the company are insufficient to meet all the claims.
As I see it, amendment 147b which was tabled on 2 February 1990 is an alternative to amendment No. 148 which was included in the comprehensive list of amendments circulated on 21 November 1989. Whereas under amendment No. 148 the Deputies proposed a change in the law in relation to preferential payments in a winding up or receivership of a company by the removal of preferences for assessed taxes and PAYE, amendment 147b, while continuing to provide for the elimination of the preference for assessed taxes modifies the approach, first, by now also seeking the removal of the preference for local rates, second, while not now seeking to remove the preference for PAYE deductions made from employees, providing, instead, to reduce the period of preference from 12 months to four months and, finally, similarly reducing the period of preference for VAT from 12 months to four months.
There are, of course, many reasons why sums due in respect of unpaid tax ought to have priority. First, such sums are, as it were, owed to the community at large rather than to a single creditor; second, the Revenue is an involuntary creditor. Unlike other creditors the Revenue cannot choose those with whom it will transact business. It is obliged to accept its taxpayers as it finds them and cannot avoid giving them credit. Indeed, it could be said that taxing authorities necessarily operate after the event. Even if there are no delays on the part of the taxpayer there will, inevitably, be a significant lapse of time after the transaction giving rise to the tax liability before any attempt to collect the tax can be made. There are no means, such as may be available to private creditors, to restrict the amount of credit which is extended or to require existing tax liabilities to be discharged before further transactions giving rise to fresh tax liabilities are entered into. Furthermore, it is common experience to find that the taxpayer in his efforts to avoid impending insolvency has ignored the demands for payment of tax while continuing to pay suppliers and other creditors whose goodwill is essential to his commercial survival.
In the case of PAYE and VAT, in particular, the State's claim is for moneys actually collected by the debtor and for which the debtor is accountable to the State. The debtor is, therefore, really a tax collector rather than a taxpayer. Unless some measure or priority was accorded to the State for moneys collected on its behalf, these moneys would simply go to swell the insolvent's estate to the advantage of the general body of creditors. It is not accepted that statutory provisions enacted for the more convenient collection of the revenue should accrue to the benefit of private creditors.
I think it is fair to say that the Deputies appear to have implicitly recognised this in tabling amendment No. 147b. Having regard to the fact that even with a 12 month preference operating, the Revenue authorities invariably fail to recover the full amount owing for PAYE and VAT, the proposal to reduce the period of preference from 12 months to four months is not acceptable.
Criticism is sometimes levelled at the Revenue Commissioners over alleged heavy handedness in pursuing tax debts with the result that businesses collapse when they could have survived if they had been allowed more time to weather a bad patch. To be realistic, however, if financial help is needed there are legitimate sources for this. A company should not be depending for its cash flow on debts which are due to the public purse. In practice, I understand there are some limited measures of flexibility which are generally shown by the Revenue Commissioners if there appears to be a bona fide case of short term difficulty over finding cash to pay a tax bill, and I am sure all Deputies have experienced that situation.
In so far as local rates are concerned, many of the same considerations apply as in respect of the Revenue authorities. For example, the debts are due to the community at large and the local authority is effectively an involuntary creditor, and so on. In these circumstances, I am satisfied that the preference affords a limited protection to authorities owed moneys for rates by companies which go into liquidation and must be retained.
With regard to amendment No. 149, it has not been moved.
They are being discussed together. Perhaps the Minister will resume on his reply in respect to amendment No. 149.
I will come back at the next meeting, because it is a lengthy reply. When will the next meeting be held?
The Committee will decide that.
Is there any particular reason or is there some insurmountable obstacle to getting the reports of the committee out earlier? There is a fairly long time lag. I know it is not light bedtime reading for everybody, but there is a time lag. Is there a physical problem?
I think we explained what the position was in relation to the next few issues. There is a delay which, I am told by the staff, is outside their control. It is a matter of logistics, unfortunately. While I accept that for this complex legislation it is a little unsatisfactory for some members, all we can do is bear with them and be assured that we are getting them out as quickly as possible.
I was going to make the point that I do not think we should bear with them. As I understand it, the hard copy goes from here to the printer before it is set up. Deputy Bruton made reference to this in the Committee on Procedure and Privileges. It is a most archaic way of formulating any report. It is no fault of the staff here and there is no reason copies of the typed, rough draft before it goes through the editors and on down, should not come back to the people who have a particular interest in it. In fact, I was reading through the three reports that came out — they are not light reading. However, it is fascinating to look back over them to see what arguments were adduced and, in particular — I am not particularly generous to any group here — if Members are putting a set of motions it is very difficult for them to follow the logic, particularly when they have conceded points without having a hard copy of the evidence before them. I think it would be possible to bring this forward and to speed up the process somewhat without waiting for the report to be perfected. As I understand it, a hard copy is available within a relatively short period. I know the staff in the House take a great deal of time making sure the report is correct, perfect and proper, but the "black" that is produced in the House, which is totally unedited and would simply be used for a reference, might be a way of accommodating particularly Members opposite.
I am informed that if there are any specific points raised at our meeting which Members want to have before the following meeting, it is open to them to go to the relevant officials and get copies. It is not of a great quality but it can be obtained if Members of the committee really need it, for the purposes of making a discussion at a subsequent meeting. Second, what I would suggest in relation to Deputy Roche's point is that the officials here will bring that back to the relevant authorities and see if it is feasible, and we can make a statement on it before the next meeting.
I appreciate that offer from the officials, but just to underline the point, the Minister himself has made the point today that on occasion he has indicated here that he may or may not be disposed towards accepting an amendment and when he takes it back to his advisers in a number of different sections another view begins to emerge. If people who have been dealing with the Bill for the last number of years and who have specialist knowledge in this area, find that to be the case, it is understandable that the rest of us, who are supposed to be contributing at this Committee, find it very difficult to remember what was the content of the Minister's point. I remember the nub of his point on the last amendment moved by Deputy Bruton and, as it happens, I agree with him, but it is very difficult to remember more than that. It inhibits us in trying to stay awake and make any serious contribution, because we have not got the text in front of us. There is an interaction of different sections, and there is the whole question of consistency. If something could be done to bring it on stream earlier it would help us.
I will make a statement on it at the next meeting.
In view of the fact that we have made a significant investment in computers in the House, it should be possible to transfer material from computers on line straight down to the printer, using desk-top printing techniques. That should enable us to have this very quickly. It is ridiculous that we are still working Victorian technology in terms of printing our debates. In Britain the Hansard appears the next day.
On that point, two meetings ago there was a young reporter here with a stenograph. It had a disc in it. He went away from here, put the disc into a word processor and the editor in the newspaper could have hard copy of everything that was said here within two hours of the meeting finishing. It is extraordinary. It is very low cost technology — the total cost is about £1,500 for the personal computer and about another £1,000 for the stenograph. It is extraordinary that there is not that sort of technology in the House: in fact, it is bizarre. It would reduce greatly the cost to the taxpayer if we could move in that direction. That is something for the Committee on Procedure and Privileges.
The general point you make should be brought up with the Committee on Procedure and Privileges as quickly as possible and resolved. In relation to our own situation here, I will make a statement next week and try to deal with it while the general improvements, hopefully, arrive as quickly as possible.
Progress reported; Special Committee to sit again.
The Special Committee adjourned at 6.30 p.m. until 4.15 p.m. on Tuesday, 20 February 1990.